Darling warns banks to help borrowers

Alistair Darling warned banks to go 'much further' in supporting Britain's economy as it emerged that interest rates on personal loans and credit cards are continuing to soar.

Darling: The Chancellor has warned banks to help lenders more as interest rates continue to soar

The Chancellor told MPs he is preparing further measures to bolster lending, warning banks 'have to play their part' after receiving £37bn of taxpayer cash.

His comments to the Treasury Committee came as Bank of England data revealed lenders are refusing to pass on dramatic cuts in the base rate to 2%.

Instead, overdraft charges were jacked up to an average of 18% last month, the highest since 1995.

And the premium lenders charge on tracker mortgages has surged to a record high, forcing some homeowners to pay an extra £2,000 a year on their loan.

The worsening credit drought will top the agenda of Paul Tucker, who is to become BoE deputy governor for financial stability in March.

Darling announced City favourite Tucker will replace Sir John Gieve, who was controversially shunted aside earlier this year following the Northern Rock affair.

The Chancellor also told MPs that David Blanchflower will not seek a second term on the Bank's Monetary Policy Committee, depriving the group of one of its most prescient members.

The US-based economist has advocated rate cuts for 12 months, because he correctly foresaw how severe the downturn would become.

Until recently the majority of the MPC, including governor Mervyn King, remained focused on an inflation threat that proved to be transitory.

Economist Danny Gabay, of Fathom Financial Consulting, said: 'His promotion will hopefully open the way to a two-way dialogue, rather than the lecturing we have grown accustomed to over the past 12 to 18 months.'

But Gabay added that the way Gieve was singled out as the fall guy for Northern Rock remains 'disgraceful'.

One of Tucker's key tasks will be to bring a greater understanding of the interaction between market stability and monetary policy to the MPC.

Over most of the past decade the Bank badly under-estimated the impact of financial sector developments as it attempted to steer the economy.

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Darling has warned banks to help lenders more as interest rates continue to soar